Foreign Contribution Regulation Act

Explore the Foreign Contribution Regulation Act (FCRA) in India, its regulations, recent issues, and opportunities for Chartered Accountants in ensuring compliance.

Recently the Ministry of Home Affairs (MHA) has cancelled the license of Rajiv Gandhi Trust and one other for violation of provisions under Foreign Contribution Regulation Act.

What is Foreign Contribution Regulation Act?

• It is basically a law which was enacted in 1976 and amended in 2010 with the primary purpose of regulating the inflow of foreign contributions and ensuring that the received foreign contributions are not utilized for illegal purposes. All charitable organizations in India receiving foreign contributions come under the purview of this Act. So it can range from an individual to an NGO. It came during the times of emergency when there was a clamour around foreign players being involved in Indian politics to subverse and it was not something new. The clamour for it grew back in 1969 in the parliament that foreign players are at work to distort the polity of India.
• It can regulate foreign donation and in such a manner it wants to regulate the foreign contribution so that the individual as well as the association, they function in a manner which is consistent with the values of a Sovereign, Democratic and Republic that means they are getting the contributions from foreign it should not be used against the country.
• It is implemented by Ministry of Home Affairs, Individuals are permitted to accept foreign contributions without permissions of Ministry of Home Affairs but the foreign contribution should be less than Rs. 25000.

Can Private Company also receive foreign contributions?

Yes, any private company can receive foreign contribution if they wish to do charitable work at some point of time subject to following conditions: –

• It must obtain FCRA registration/Prior Permission from the Central Government.
• It must have a definite cultural, economic, educational, religious or social programme.
• It must not be prohibited under Section 3 of FCRA 2010.

How else can one receive foreign funding?

• Other way to receive foreign contributions is by applying for prior permission
• Association should be registered under statutes such as the, Societies Registration Act, 1960 , India Trust Act, 1882

Who Can not receive foreign contribution?

• Candidates for elections
• Journalist or newspaper and broadcast companies
• Judges and government servants, members of legislature and political parties or their office-bearers, and organizations of a political nature

Procedure for making application for registration prior permission

• Application for grant of registration/prior permission is to be submitted online in form FC-3 at website fcraonline.nic.in
• Registration is initially valid for 5 years it can be renewed subsequently if they comply with all norms.
• Registered associations can receive foreign contributions for: – Social, Educational, Religious, Economic and Cultural Purposes

What are the requirements?

• The funding that is received as foreign contribution will be received only in an account designated by the bank as FCRA account.
• And no funds other than foreign contributions should be received or deposited in this account. It allowed the government to restrict usage of unutilized foreign contributions.
• NGOs administrative use restricted to 20 percent.

When can the Registration Suspended or Cancelled?

• MHA(Ministry of Home Affairs) on inspection of accounts finds any adverse input against the functioning of an association can suspend the FCRA registration initially for 180 days.
• Until a decision is taken, the association cannot receive any fresh donation and cannot utilize more than 25% of the amount available in the designated bank account with the permission of Ministry of Home Affairs.
• If Ministry of Home Affairs cancels the registration of any organization it will not be eligible for three years from the date of cancellation.

What have been the recent issues related to FCRA?

• Union Home Ministry has suspended licenses of some NGOs, because they used foreign contributions for religious conversion.
• The FCRA registration of close to 5,900 NGOs lapsed on December 31 last year including Oxfam India Trust.
• Apart from that until 2011, there were more than 40,000 NGOs working by being registered under FCRA in India. Now there are only 16000.
• The Supreme Court (SC) upheld the constitutional validity of the Foreign Contribution (Regulation) Amendment Act (FCRA), 2020 but, The PM CARES Fund received an exemption in which foreigners could also donate towards helping the PM cares.

Opportunities for Chartered Accountants under FCRA

• Since FCRA is dealing with national security, associations are required to exercise extreme care and caution in utilizing foreign contribution
• CA examine and audit all relevant books of accounts and Bills and vouchers of FCRA associations and then present audited accounts which are submitted/uploaded online to the Government. Therefore, they are obliged to conduct performance as well as forensic audits to ensure that receipt and utilization of foreign contribution has happened within the four corners of law. Hence, they are expected to provide proper guidance to the associations in maintaining proper accounts and utilizing foreign contribution only as provided under the FCRA law.
• Chartered Accountants may help/guide NGOs:

– To verify whether the associations are eligible to receive foreign contribution.

-To ensure that the association receives and utilizes the foreign contribution (FC) through its bank account exclusively opened for the purpose in accordance with the amended provisions of FCRA, 2010 and FCRR, 2011 and that foreign contribution is not deposited in or utilized from the bank account being used for domestic funds.

-To assist in the proper preparation and maintenance of prescribed books of accounts in accordance with the provisions of FCRA, 2010 and FCRR, 2011;

-To ensure that the annual returns of the association/NGO have been prepared and uploaded in accordance with the provisions of FCRA, 2010 and FCRR, 2011 as amended from time to time (Statutory Form FC-4 for Annual Returns stipulates that CA shall certify that the association has utilized Foreign Contribution received for the purposes(s) it is registered/granted prior permission by the Government).

• Some opportunities for Chartered Accountants in FCRA include:

– Regulatory Compliance: Chartered Accountants can provide advisory and compliance services to financial institutions to ensure that they comply with the FCRA regulations. This can include reviewing and assessing the adequacy of capital, monitoring and reporting requirements, and helping institutions meet disclosure requirements.

– Risk Management: Chartered Accountants can help financial institutions identify and manage risks associated with capital adequacy. This can include assessing the impact of capital requirements on the institution’s financial statements, evaluating risk management processes, and developing strategies to mitigate risks.

– Capital Planning: Chartered Accountants can assist financial institutions in developing capital planning strategies to meet FCRA requirements. This can involve evaluating capital needs, developing capital plans, and advising on the optimal capital structure for the institution.

– Internal Audit: Chartered Accountants can perform internal audits of financial institutions to ensure compliance with FCRA requirements. This can include reviewing internal controls, testing compliance with capital adequacy requirements, and assessing the accuracy and completeness of financial reporting.

• Overall, the FCRA presents significant opportunities for Chartered Accountants to provide value-added services to financial institutions and help ensure that they comply with regulatory requirements.